Employee’s Acceptance of Gratuities Subjects Company to Heightened Liability Under Anti-Kickback Act

In United States ex rel. Vavra v. Kellogg Brown & Root, Inc. (Feb. 3, 2017), the Fifth Circuit held that under Section 8706(a)(1) of the Anti-Kickback Act — permitting recovery of twice the amount of each kickback plus $11,000 for each occurrence of a prohibited conduct — corporations are liable “for the knowing violations of those employees whose authority, responsibility, or managerial role within the corporation is such that their knowledge is imputable to the corporation.” In applying this standard to the two Kellogg Brown & Root, Inc. (“KBR”) employees who had accepted meals and entertainment (on 33 occasions) from a supplier, the court found that one employee’s knowledge could be imputed to the corporation because the employee was responsible for supervising the subcontract at issue, for ensuring the supplier met its obligations, including contract performance, and for executing technical evaluations for rebidding the subcontract and therefore “had somewhat significant managerial authority over the sphere of activities in question.” In contrast, the court found the other employee who was neither involved in nor had the authority to take any procurement action regarding the subcontract at issue during the relevant period had only “limited authority” that was not enough to impute his knowledge to KBR.

With respect to whether numerous instances of meals, drinks, and other entertainment constituted “kickbacks” under the Act, the court concluded that “anything of value offered in order to subvert the ‘proper’ process for awarding contracts is a potential kickback,” noting that while merely seeking to develop good will or a good working relationship to gain more business would be insufficient, it was “enough to connect the gratuity with the specific kind of treatment sought in a way that establishes impropriety.” The court found the connection was satisfied with testimony that the supplier provided gratuities, in part, to subvert proper procedures: the supplier employee testified that the KBR employee “was the highest-ranking guy that we dealt with … [and] the most important [person at KBR] with regard to controlling service issues.” When asked why he provided gratuities, the supplier employee answered that it was because the KBR employee “would bring service issues to us. Specifically he knew me based on entertaining; so, if they had issues, he would bring them to me before they escalated out of control.” The court found the testimony provided sufficient specificity to support a finding that the KBR employee received gratuities to overlook and/or forgive performance deficiencies in subversion of proper procedures and in violation of the Anti-Kickback Act.

Featured Post

Fastest 5 Minutes, The Podcast Government Contractors Can’t Do Without

The "Fastest 5 Minutes, The Podcast Government Contractors Can't Do Without," is hosted by Partners Peter Eyre and David Robbins of Crowell & Moring's Government Contracts Group. This podcast provides a biweekly summary of significant government contracts legal and regulatory developments that no government contracts lawyer or executive should be without.

1.202.624.2666

Partner

1.213.443.5549

About The Government Contracts Legal Forum

The Government Contracts Legal Forum is dedicated to addressing real-time, cutting edge developments in government contracting. Our attorney authors are part of one of the largest practices with a 40-year history. Our lawyers are bar and industry leaders, and our practice is widely recognized as the best in the business. In describing the practice, Chambers USA stated that "[t]his stellar group is widely respected for its deep bench and broad experience." We advise a broad range of clients, from privately held businesses to multinational, publicly-traded Fortune 100 corporations, as well as small non-profits, academic institutions, and emerging research and development enterprises. Our experience covers virtually every aspect of the increasingly complex and heavily regulated government contracts and grants process, from entering the government marketplace and bidding on public contracts to complying with complex regulatory regimes and performing contracts, litigating disputes, and handling terminations. Whether your company is competing for its first government contract or grant, or has a long history of working with dozens of agencies, Crowell & Moring's Government Contracts Group can provide consistent and comprehensive guidance and support to help foster growth and success, as well as get — and keep — companies out of hot water. If we can be of service to you, please contact one of the Government Contracts Group co-chairs, Angela Styles or Dan Forman.